Is High-Frequency Trading the Reason Bitcoin Has Become Boring?

Is Excessive-Frequency Buying and selling the Purpose Bitcoin Has Develop into Boring?

The Bitcoin (BTC) market has been quiet currently. Slightly too quiet.  

As of Tuesday Bitcoin’s volatility ranges had dropped to ranges unseen since 2017. In current weeks, Bitcoin has fallen behind as buyers piled into altcoins akin to Chainlink (LINK) and Cardano (ADA) . 

One potential clarification for Bitcoin’s consolidation could also be an elevated presence of high-frequency buying and selling (HFT) companies in crypto in current months. Talking to Cointelegraph, Paolo Ardoino, CTO of Bitfinex defined that he believes HFT is a significant cause behind Bitcoin’s low volatility. 

“In crypto, we’re again to the outdated days of HFT earlier than it turned the zero-sum recreation that it has grow to be right this moment. In crypto HFT companies could make some huge cash deploying comparatively easy performs, akin to cross-exchange arbitrage and exploiting the unfold between one trade and one other.” 

HFT and cryptocurrency

HFT is a buying and selling methodology that makes use of algorithms to transact a lot of orders in fractions of a second. It has existed within the cryptocurrency house for a very long time. However simply as billionaire Paul Tudor Jones revealed his Bitcoin holdings lately, different institutional buyers are more and more becoming a member of the market. This may increasingly clarify the better use of HFT. 

Bitfinex, which claims to be “large for HFT in crypto”, lately revealed that between 80 % and 90 % of quantity on Bitfinex was now generated by HFT companies. Bitfinex partnered with Market Synergy and has been providing “institutional commonplace cryptocurrency connectivity.” 

Bitfinex concludes the rising use of HFT represents growing “maturity within the digital asset house”. However why would Bitcoin volatility go down with elevated use of HFT? Ardoino explains the elevated liquidity because of the surge of HFT tradings results in low volatility:  

“As Bitcoin turns into a longtime asset class, we anticipate the excessive ranges of volatility related to cryptocurrency to recede,” he defined. “There’s typically an inverse correlation between liquidity and volatility; i.e., increased liquidity tends to result in lower cost volatility.”

“The growing presence of HFT companies in crypto appears to have added extra liquidity to crypto exchanges. This offers enough orders for each side of the order e book and will increase market effectivity, contributing to extended low volatility value consolidation in Bitcoin” 

Bitcoin is known for shifting aggressively for a brief time frame. Final 12 months, Tom Lee of Fundstrat reminded buyers that almost all of Bitcoin (BTC) beneficial properties come within the ten finest buying and selling days of the 12 months. Nonetheless, the rising presence of HFT could also be altering the “rule of 10 finest days” as nicely.